The Government's first-time buyer schemes explained

Struggling to get a foot on (or up) the property ladder? Here's our round-up of Government schemes that could provide just the boost you need.

Being a first-time buyer usually means forking out rent, saving for a deposit and playing catch-up with ever-rising house prices all at the same time. No easy feat. But the good news is there are a range of Government schemes available which could provide just the boost you need to make it to the first (or next) rung of the housing ladder. We've outlined them below.

Help to Buy schemes

One of the most popular schemes is the Government's Help to Buy which provides a leg-up to those who can only muster a 5% deposit to buy a home. While the scheme is not limited to first-time buyers, the vast majority of applicants fall into this category.

But, is Help to Buy worth it? Here's a refresher on the two parts to the scheme, Equity Loan and Mortgage Guarantee, as well as an introduction to its latest incarnations.

Equity Loan (shared equity)

Under the Equity Loan scheme, buyers must find a deposit of at least 5% of the property value, while the Government offers an interest-free loan of up to a further 20%. The remaining 75% is covered by a standard mortgage.

Because buyers are only borrowing 75% (loan to value) the idea is they will be able to access cheaper rates than would otherwise apply to a 95% mortgage. However, don't assume this is always the case. Make sure you independently compare mortgage deals too.

As an example, if you wanted to buy a £200,000 property under the Equity Loan scheme, you'd need a minimum deposit of £10,000 and you'd then have to qualify for a £150,000 mortgage. An equity loan of £40,000 would be stumped up by the Government.

This is how the £40,000 Equity Loan works:

There is no interest to pay for the first five years

In the sixth year, interest (known as a 'loan fee') kicks in at 1.75%

The rate increases every year thereafter at the RPI (retail prices index) measure of inflation plus 1%

It's important to note these fees do not go towards repaying the Equity Loan. Instead, this debt is repaid when you sell the house (or, if you stay there, at the end of your mortgage term). At that point, the Government will take back its 20% share in the new value of the property, whether that is a growth or a loss.

Alternatively, you can repay the loan during the first 25 years at any time you like, but only in minimum 10% increments of the property's current market value - note not 10% of the equity loan.

The Help to Buy Equity Loan scheme, which is only available on new-build properties up to a maximum £600,000, is open in England until 2020.

The Welsh version, which was due to end in March 2016, is now entering a second phase which spans until 2021 and will support the construction of 600,000 new homes in Wales. You can find out more here.

Help to Buy London

Help to Buy London, first announced in the 2015 Autumn Statement, is a extension of the Help to Buy Equity Loan, specifically for people wanting to buy in London and Greater London, where house prices can climb at notorious speeds.

For a 5% deposit, the scheme offers a five-year interest-free loan against qualifying new-build homes. The difference with Help to Buy London is that the loan is worth up to 40% of the value of a home, opposed to the maximum 20% under the wider scheme.

Help to Buy London, which can be used hand-in-hand with the Help to Buy ISA, has been available since February, 2016. You can find out more about the scheme with our handy Q&A.

Mortgage Guarantee

The second part of Help to Buy is known as the Mortgage Guarantee.

Here, a buyer is still required to raise a 5% deposit but, instead of a loan, the government provides a guarantee (of up to 15% of the property price) to the lender against the borrower failing to keep up with repayments.

The arrangement is designed to encourage lenders to offer more plentiful and cheaper mortgages at high loan-to-values. The application process then works the same way as any standard mortgage.

So, a buyer looking to purchase a £200,000 property using the Mortgage Guarantee will need at least a £10,000 deposit. Up to a further £30,000 could be guaranteed by the Government.

Unlike the Equity Loan, the Mortgage Guarantee element of Help to Buy is available against both new-build and existing homes, again, up to a maximum value of £600,000.

However, this part of Help to Buy will expire on 31 December 2016, a date that was confirmed by Chancellor, Philip Hammond on 29 September 2016.

The end of this part of the scheme will mean mortgage lenders can no longer buy the guarantee from the Government. But the idea is that bank and building societies will continue to offer 95% mortgage deals independently, as confidence has been restored to the market.

More than 30 lenders now offer mortgages with a 5% deposit, and Santander had already pulled out of the Mortgage Guarantee scheme in favour of offering its own deal.

If you still want to apply for a Help to Buy Mortgage Guarantee, you'll need to contact one of the 13 participating lenders, which are listed here.

Whichever part of Help to Buy you opt for, the following rules will apply:

The property must not be a second or buy-to-let home

It must not be rented out after you buy it

It must not be bought in conjunction with another scheme such as Shared Ownership

It must have a purchase price of £600,000 or less

A word of caution! Help to Buy mortgages work no differently to standard deals in that, if you are unable to repay the loan, you run the risk of having your home repossessed.

If you find yourself struggling to meet your monthly mortgage payments, the first step is to speak to your lender as it may be able to find an appropriate repayment plan. Your lender will only want to use repossession as a last resort.

Help to Buy ISA

The Help to Buy ISA, which launched on 1 December 2015 boosts the savings of first-time buyers.

For every £200 a buyer saves, the Government will add £50, up to a maximum bonus of £3,000 on £12,000 of savings.

However, it's recently transpired that the Help to Buy ISA bonus cannot be put towards the initial deposit required to buy a home. Instead, the tax-free lump sum will be paid directly to the mortgage lender at completion.

This means that first-time buyers will have to save the initial deposit (payable at exchange) themselves, and use the bonus to slash their overall mortgage amount and subsequent repayments.

There are other limitations on the account such as a cap on the price of properties that the bonus can be used to buy. This stands at £250,000 or £450,000 if you are buying in London. Only one Help to Buy ISA is permitted per person and you won't be able to pay into a regular ISA at the same time.

Banks and building societies offer their own Help to Buy ISA interest rates which vary (find our what's on offer here). Some also include an upfront bonus that falls away after an initial 'honeymoon' period, which is something to watch when you are saving for the long term.

Make sure you shop around to get the best deal and keep in mind you can transfer between Help to Buy ISA provider if your rate falls.

Lifetime ISA

In his 2016 Budget, the Chancellor announced the introduction of the new Lifetime ISA which offers a tax-free boost of up to £1,000 a year towards either buying your first home OR saving towards retirement.

Savers who are aged 40 or below can open these accounts which will be available from April 2017 and put away a maximum £4,000 each year. The Government will then boost returns by 25p for every £1 saved and pay the bonus directly into the account at the end of each tax year.

You can then opt to use your Lifetime ISA cash as a deposit on a property worth up to £450,000 anywhere in the UK, so long as you are a first-time buyer. You will be able to roll up any cash in your Help to Buy ISA into your Lifetime ISA without losing the tax-free benefits.

Lower earner? Find out about Help to Save which is available from April 2018.

Starter Homes scheme

In March 2015, the Government launched a new Starter Homes scheme aimed at first-time buyers aged under 40.

Under the scheme 200,000 new homes will be built and sold at a minimum discount of 20% of the market price to those who have never owned before. The discount is made possible by the Goverment's double whammy of offering developers the chance to build on cheaper brownfield commercial land and waiving taxes.

A cap is applied on the price of homes available under the scheme which is set at £250,000 or £450,000 if you are buying in the Capital. Starter Homes cannot be resold or let at their open market value for a period of five years after the initial sale.

Shared Ownership

As it says on the tin, Shared Ownership schemes allow buyers to purchase just share of a home (between 25% and 75%) from a local Housing Association and pay an affordable rent on the part they do not own. Under a process known as 'staircasing' the buyer is then able to buy back chunks as and when they can afford to until 100% of the home belongs to them.

In his 2015 Autumn Statement, the Chancellor announced that a further 135,000 homes will be built under a new Help to Buy Shared Ownership scheme. This scheme will also lift the cap on the various household income criteria that apply to current Shared Ownership schemes. Maximum qualifying household incomes currently (since April 2016) stand at £80,000 outside London and £90,000 inside London.

Right to Buy

Right to Buy enables council tenants with at least three years’ consecutive years tenancy (reduced from five years in May 2015) to potentially buy their home at a significant discount. You can find out if you are eligible for the scheme at the Government website.

Since 6 April, 2016, council tenants (or those living in their homes when it was transferred to another landlord) will benefit from deeper discounts if they want to buy their property. This is £77,900 or £103,900 if you live in London.

In his Autumn Statement, George Osborne said he would extend the Right to Buy scheme to tenants of five housing associations. (More detail on this to follow.)

Getting there without help

It is possible to get on the housing ladder with only a small deposit without a leg-up from these types of schemes. Mortgages that are not backed by the Government are available for deposits of between 5% and 10%. And some may even offer a better rate or terms for your personal circumstances, so always do your research and compare mortgages at different deposit levels.

Finally, don't forget to factor in Stamp Duty which is payable on all primary homes worth over £125,000. Our handy calculatorwill show you how much you'll have to pay according to the property value.